The lower class and lower-middle-class people who have lower incomes are not willing to file their income tax returns because they have to pay a fee of Rs. 1000 to the tax professional, even if they help you file a nil return.
We usually approach a tax professional for filing our tax returns. The tax professional tells you to send in your bank statement, which he forwards to his team of interns, who does the data entry of all the records in the statement, creating a financial year account book in accounting software, informing you of the taxable amount if applicable. You pay the tax, share some transaction number with your tax professional. He then visits the Income-tax website or uses software to file your tax returns on your behalf, finally charging you a professional fee of let’s say a minimum of Rs. 1000 per year.
In all this, you did 2 things.
1) You not only paid some taxes to the government but also paid the fee to the tax professional. No, I am not against the tax professional, nor I want this profession to become jobless. But let their services be bought by the companies, corporates or medium to large scale business who really can afford to pay them professional fees. Why discourage a nill return filing or even a small amount tax filing.
2) You opened up your bank statement which is a matter of privacy, in front of a tax professional who decides his professional fees based on how much you are earning in a financial year, and not based on how much data entry or his professional opinion is required for gaining tax benefits and filing your returns.
Let me give you an example.
Let’s say you are into an Ads business, you bought 2 ad spaces at a premium location which you sell to the brands who are willing to buy that hoarding space for a month to put up their Ad posters promoting their brand or their new launches. They send you the cheque every month. That means 2 entries of incomes per month, which is 24 entries per financial year. His yearly profit comes to Rs. 2,40,000.
Now let’s say there is another person, who is into a business which has small products or small services which creates a lot of income entries in your books of accounts. For example, a pest control service provider, AC repairing, IT service provider, selling dry snacks, kitchenware or household items, groceries and more. These entries could be from Rs. 100 to Rs. 400 or more. Now, in one financial year, he has around 300 entries in his account book, but his profit is just Rs. 1,65,000.
A bank statement can tell everything about you, the tax professional can learn how much you spend on luxury, travel, utilities, savings, investments, insurance and all.
This way he makes a guess of how much more you may have earned with cash transactions, which you are not willing to show in the records. The question is, why give an opportunity to the tax professional to make such wild guesses and charge us according to his own calculation of how we are earning and not according to the time is required for his interns to do the data entry in the accounting software.
Not necessary everybody wants to hide their incomes. The government should make use of the technology and come up with something wherein the process of tax filing becomes not only easy but beneficial to the taxpayer also.
Here is what can be done.
Every sole proprietor or freelancer providing services or selling small items should be able to file an income tax return on his own and pay the tax without spending money for the services of a tax professional. If he is filing a nil return, he can simply donate Rs. 500 to the government, contributing to the treasury for the development of our nation.
In the age of smartphones, fast internet and Aadhar card, the government can launch a very simple website with a mobile app. Wherein a person simply registers himself quickly mentioning only 1 detail, that is his or her Aadhar no. for OTP verification.
However poor a person may be, but he or she anyhow accumulates Rs. 5000 to buy a basic smartphone. He may not have other things in life, but he or she will surely have a smartphone. He may not know how to operate a computer, but he knows what an App is and can learn the app quickly himself or with a little help from someone. This becomes easy if the app is at least in 12 Indian languages.
The app should not ask about the profession, or if he is a service provider, manufacturer or trader. Today, some people do a job and provide services or sell something simultaneously to have an extra source of income. Sometimes they do 2 part-time jobs and do freelancing on Sundays.
All other details like Name, Address, Mobile No, Email address, DOB, Pan Card details will be pulled from the Aadhar server.
On the dashboard of the website or the app, the user should get only 3 options, that is Income, expenses, and pay tax.
What you have to do is every time anything is incoming into your pocket or outgoing from the pocket, you have to make the entry of income or expenditure through the app or from the website, this way at the end of the financial year that is on 31st March, the government, based on the entries you made will inform you through email or SMS whether you have to pay any taxes or no. If yes then how much.
This way the government is not only saving the tax professional fee being paid from the pocket of low-level income people but also encouraging them to file the tax returns easily. Also helping them to save their entries in a way that can help them understand their incomes and expenditures and plan their future expenses accordingly. The app should also provide an option to search and show all the entries from one particular category. Let’s say if you want to know how much did you spend on Movies or food in the last 3 months or last years. This can help you decide your monthly or yearly budget accordingly. With all these services, the government can charge a small fee of Rs. 200 from every taxable person. But for those whose income figure is non-taxable, they should be allowed to use the app for free.
In future you can refer to the pricing of the past and compare it with the current price of any products or services you have been buying from that same or different person or the shop.
So let’s say Today morning you took a bus or an auto-rickshaw went to the office, had lunch at a restaurant. While returning home, you bought milk and vegetables, again took a bus, reached home. Tomorrow is Sunday, you went to buy groceries, paid your utility bills like electricity, home maintenance, paid insurance premium, school fees of your kids, booked a train ticket or a flight for next month travelling, car or house loan instalment, bought clothes or jewellery for an upcoming family function, bought a gift for your wife or children or dear ones. Expenses during a doctor visit, medicines, medical care, any side incomes, received gifts from parents or in-laws, or anything which is incoming or outgoing.
All these data will be available to you for years and decades, which means you can compare the prices, expenses and incomes.
All you have to do is just punch in the expenses or income through the app or website immediately or once a day, where you will have to add only 3 details
a) Income or Expense Type (Compulsory)
b) Amount (Compulsory)
c) Date (Compulsory)
d) Extra info for your use (Not compulsory)
The expense type could be a drop-down list for your selection having basic categories like Transportation, Food, Insurance, Medical, Policies, lifestyle, education, gift and more.
Important: Don’t buy gifts for your extramarital and make an entry in the app as “Gift”. The government will not come to help you. Instead of writing as “Gift”, write as “Donate to Poor”.
The income type could be a drop-down list for your selection like Job salary, consultancy fee, or a service fee of any kind or a profit on trading or investments like stocks, mutual funds, or you sold something you made at small scale, for example, home-cooked food or flour and many such examples.
Let the app do the calculation of what tax benefits one should get, for example, LIC policy premium and more.
I understand that taxation is a very complex thing. But believe me, major of the population will start paying taxes or at least start maintaining their accounts books if it is made available to them in a simple format without any confusions. For example, if there is an income from overseas, then simply add a currency option near the ‘Amount’ as USD, GBP, EURO and all. This way the app can understand that this is a foreign income. There may be many apps that are doing the same thing which I am mentioning in this piece, but if the tax authority comes up with their own app and website, people will have more trust.
They will be more than happy to pay Rs. 200 to the government, instead of paying Rs. 1000 to the tax professional for filing a tax return.
Those filing a nill tax return won’t have to worry about opening up their life details in front of a tax professional, which they do not trust much.
Tax professional’s usually don’t share their client’s details with any third person, but who else other than them would a taxman learn about the inner secrets of the possible bakras who can be harrassed for a bribe. I have seen cases where the tax professional’s themselves inform the taxman to issue a notice to their clients so that the tax professional and the taxman can rip off their client and share the bribe.
The government must remove the dependence on tax professional’s role for income tax return filing for at least lower and lower-middle people.
I understand that in our country people always find a workaround, as we call it ‘Jugaad’ to avoid registering on possibly such apps or making very little entries of incomes and expenditures or do a fake entry to avoid paying taxes and all.
But some genuine people believe in paying taxes, even if it’s a small amount. Because, they believe that the government needs money to make roads, bridges, infrastructures, import things from a foreign country, strengthen our defence, serve people with good facilities, and more. I believe that even if 3% of our population start using this app, it will make a huge difference. Once these people are convinced, the number of users will increase. People just want simplicity and trust in the system.
One thing the government should avoid doing in the app or website is to force people to upload images of bills, invoices and all.
If the taxman thinks that a particular entry of income or expenditure needs an assessment, only then the taxman should red flag or orange flag that entry, requesting the user to upload any proof to support that entry. It could be bills or invoices or anything. Don’t burden people with all this, let them get used to the app for at least a year or 2. Let them become comfortable with it.
The current system of filing income tax returns is failing, no matter how many upgrades they do on the e-portal for easier tax filing of the returns, a common man still have hurdles to understand the tax jargons and the different kind of ITR forms, and would hate to approach the tax consultant even for the nil filing.
Instead of upgrading the e-portals, a completely new approach with a simple system is required to convince and encourage a common man to self-file his income tax return. The government can launch the first version of the app & website which could be very basic. And then there can be a lot of improvement and fine-tuning in the future, just like how the GST council does periodically.